The Indian rupee slipped to its weakest closing level on record on Wednesday pressured by a buoyant dollar but the local unit managed to fare better than its Asian peers supported by dollar sales from state-run banks.
The rupee ended at 84.08 against the U.S. dollar, its weakest closing level on record, and marginally lower than its closing level of 84.0775 in the previous session.
The dollar index was up 0.2% and touched a peak of 104.37, its highest level since early August. Asian currencies declined between 0.1% and 0.5% on the day.
Rising odds of a victory for Donald Trump in the upcoming U.S. presidential election and investors calibrating bets toward a gradual reduction of interest rates by the Federal Reserve have boosted the dollar and U.S. bond yields.
The dollar index has risen more than 3% in October so far while the 10-year U.S. Treasury yield touched a three-month peak of 4.24% on Wednesday.
"The worst outcome for the U.S. bond market (prices) and most bullish outcome for the U.S. dollar, at least initially, would be a win for Donald Trump accompanied by a “Red Sweep” where the Republicans take control of Congress so he can fully implement the fiscal policy proposals," MUFG Bank said in a note.
While near-dated implied volatilities of Asian currencies like the offshore Chinese yuan and the Korean won have risen ahead of the U.S. election, the rupee is not expected to see a jump in volatility as traders expect the Reserve Bank of India to cap outsized moves on either side.
The central bank's routine interventions have also ensured that the rupee has averted sharp losses even as outflows from local stocks surged. Foreign investors have pulled out over $8.5 billion from local stocks in October so far on a net basis.
Benchmark Indian equity indices ended slightly in the red on Wednesday, logging their third consecutive day of losses.
